Question 1

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Accepted Answer

A)  quantity theory of money. 
B)  price-index theory of money. 
C)  theory of hyperinflation. 
D)  disequilibrium theory of money and inflation. 
A)  quantity theory of money. 
B)  price-index theory of money. 
C)  theory of hyperinflation. 
D)  disequilibrium theory of money and inflation.

Question 2

Printing money to finance government expenditures

Accepted Answer

A)  causes the value of money to rise. 
B)  imposes a tax on everyone who holds money. 
C)  is the principal method by which the U.S. government finances its expenditures. 
D)  causes prices to fall. 
A)  causes the value of money to rise. 
B)  imposes a tax on everyone who holds money. 
C)  is the principal method by which the U.S. government finances its expenditures. 
D)  causes prices to fall.

Question 3

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Accepted Answer

A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall. 
A)  excess demand for money, so the price level will rise. 
B)  excess demand for money, so the price level will fall. 
C)  excess supply of money, so the price level will rise. 
D)  excess supply of money, so the price level will fall.

Question 4

Explain how inflation affects savings.

Accepted Answer

Inflation discourages savings. Income ta

Question 5

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

Accepted Answer

A)  inflation-induced tax distortion. 
B)  relative-price-variability cost. 
C)  shoeleather cost. 
D)  menu cost. 
A)  inflation-induced tax distortion. 
B)  relative-price-variability cost. 
C)  shoeleather cost. 
D)  menu cost.

Question 6

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Accepted Answer

A)  1.5 percent. 
B)  2.5 percent. 
C)  5.0 percent. 
D)  4.5 percent. 
A)  1.5 percent. 
B)  2.5 percent. 
C)  5.0 percent. 
D)  4.5 percent.

Question 7

Define each of the symbols and explain the meaning of M   V = P   Y.

Accepted Answer

M is the quantity of money, V is the vel

Question 8

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

Accepted Answer

A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases. 
A)  increases, so the quantity of money demanded increases. 
B)  increases, so the quantity of money demanded decreases. 
C)  decreases, so the quantity of money demanded decreases. 
D)  decreases, so the quantity of money demanded increases.

Question 9

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

Accepted Answer

A)  movement to the right along the money demand curve. 
B)  movement to the left along the money demand curve. 
C)  shift to the right of the money supply curve. 
D)  shift to the left of the money supply curve. 
A)  movement to the right along the money demand curve. 
B)  movement to the left along the money demand curve. 
C)  shift to the right of the money supply curve. 
D)  shift to the left of the money supply curve.

Question 10

The quantity equation is M x V = P x Y.

Accepted Answer

A) True 
 B)False

Question 11

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Accepted Answer

A) True 
 B)False

Question 12

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.  
-Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Accepted Answer

A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  the Federal Reserve sells bonds. 
A)  an increase in the value of money 
B)  a decrease in the price level 
C)  an open-market purchase of bonds by the Federal Reserve 
D)  the Federal Reserve sells bonds.

Question 13

Velocity is

Accepted Answer

A)  Y/M x P) and increases if dollars are exchanged less frequently. 
B)  Y/M x P) and increases if dollars are exchanged more frequently. 
C)  P x Y)/M and increases if dollars are exchanged less frequently. 
D)  P x Y)/M and increases if dollars are exchanged more frequently. 
A)  Y/M x P) and increases if dollars are exchanged less frequently. 
B)  Y/M x P) and increases if dollars are exchanged more frequently. 
C)  P x Y)/M and increases if dollars are exchanged less frequently. 
D)  P x Y)/M and increases if dollars are exchanged more frequently.

Question 14

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

Accepted Answer

A)  rises, because one unit of currency buys more ice cream cones. 
B)  rises, because one unit of currency buys fewer ice cream cones. 
C)  falls, because one unit of currency buys more ice cream cones. 
D)  falls, because one unit of currency buys fewer ice cream cones. 
A)  rises, because one unit of currency buys more ice cream cones. 
B)  rises, because one unit of currency buys fewer ice cream cones. 
C)  falls, because one unit of currency buys more ice cream cones. 
D)  falls, because one unit of currency buys fewer ice cream cones.

Question 15

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  either money demand or money supply shifts left. 
C)  money demand shifts right or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 16

Nominal GDP measures output of final goods and services in physical terms.

Accepted Answer

A) True 
 B)False

Question 17

According to the classical dichotomy, when the money supply doubles which of the following doubles?

Accepted Answer

A)  the price level and nominal GDP 
B)  the price level and real GDP 
C)  only real GDP 
D)  only the price level 
A)  the price level and nominal GDP 
B)  the price level and real GDP 
C)  only real GDP 
D)  only the price level

Question 18

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

Accepted Answer

A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct. 
A)  menu costs 
B)  inflation tax 
C)  shoeleather costs 
D)  All of the above are correct.

Question 19

The Fisher effect says that

Accepted Answer

A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct. 
A)  the nominal interest rate adjusts one for one with the inflation rate. 
B)  the growth rate of the money supply is negatively related to the velocity of money. 
C)  real variables are heavily influenced by the monetary system. 
D)  All of the above are correct.

Question 20

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Accepted Answer

A)  nominal income and real income increased. 
B)  nominal income increased, but their real income decreased. 
C)  nominal income and real income decreased. 
D)  nominal income decreased, but their real income increased. 
A)  nominal income and real income increased. 
B)  nominal income increased, but their real income decreased. 
C)  nominal income and real income decreased. 
D)  nominal income decreased, but their real income increased.

Exam 17: Money Growth and Inflation

To explain the long-run determinants of the price level and the inflation rate, most economists today rely on the

Printing money to finance government expenditures

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

Explain how inflation affects savings.

People go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convenience that is involved in doing that is referred to as

You put money into an account and earn a real interest rate of 4 percent. Inflation is 2 percent, and your marginal tax rate is 25 percent. What is your after-tax real rate of interest?

Define each of the symbols and explain the meaning of M V = P Y.

When the money market is drawn with the value of money on the vertical axis, as the price level decreases, the value of money

When the money market is drawn with the value of money on the vertical axis, a decrease in the price level causes a

The quantity equation is M x V = P x Y.

Suppose the nominal interest rate is 5 percent, the tax rate on interest income is 30 percent, and the after-tax real interest rate is 2.1percent. Then the inflation rate is 2 percent.

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS1 to MS2?

Velocity is

Suppose an economy produces only ice cream cones. If the price level rises, the value of currency

When the money market is drawn with the value of money on the vertical axis, the value of money decreases if

Nominal GDP measures output of final goods and services in physical terms.

According to the classical dichotomy, when the money supply doubles which of the following doubles?

Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?

The Fisher effect says that

Your spouse complains that her 6% raise this year will not keep up with the increase in prices. In other words, she is unable to buy the same basket of goods with her 6% raise. Therefore, she believes that her

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. -Refer to Figure 30-3. Which of the following events could explain a shift of the money-supply curve from MS₁ to MS₂?